Is New Balance Headed for a Fall?

Results From The May Inc. Faxpollª? In our May issue, senior writer Jay Finegan described New Balance CEO Jim Davis's plans to help his company stay competitive even as his industry contracts ("Surviving in the Nike/Reebok Jungle," [Article link]). In our May FaxPoll, we asked for your input: Will Davis's strategy work?

In general, do you think New Balance's strategy will be successful in defending the company's market share?

Yes 62% No 14%

Not sure 24%

The majority thought Jim Davis was basically on track. After all, he's done pretty well so far in an admittedly tough market. "It's hard to second-guess him." But even though most of you had faith in Davis's plan, that didn't stop you from making a suggestion or two. In fact, many of you jumped at the opportunity to play armchair CEO. As one of you put it, "When will I get another chance to offer suggestions to a $100-million company?" Some wondered how this guy could gripe. "I would be satisfied with a $100-million niche." As you see it, Davis has quite a few options before him.

We heard from many die-hard New Balance fans. "My running shoes are New Balance -- I was sold 20 years ago on the fit." But some detractors focused on how the shoes look. "I, personally, don't buy New Balance shoes because of their looks." "You have to make the shoes more appealing to the eye."

Which of the following elements do you think will be effective?

Effective Ineffective Not sure

The quality pitch 79% 11% 10% Just-in-time retailing 77% 8% 15%

Increased advertising 74% 8% 18%

Domestic manufacturing 71% 17% 12%

Width sizing 70% 18% 11%

"Made in the USA" marketing pitch 67% 17% 17%

New product lines 63% 13% 25%

Some said Davis has to focus more on what he really wants to do, and that will help him fine-tune his strategy. But while many agreed on the need to focus, there were differing opinions on where that focus should be. Some thought Davis should continue to play up width sizing, but others thought it wasn't worth the effort and expense. "The majority of the athletic market doesn't care. You're wasting a lot of money on dead inventory." Others thought that limited width sizing might be more worthwhile. "Cut back the width sizing to two or three times what your competition does. That's sufficient to maintain the edge of 'Made for you.' " For width to be an advantage, some said, Davis has to educate the consumer. "Many people don't know the difference -- they wear shoes that don't fit, thinking that's the only way the shoes came." Others said it's not so much the consumer Davis needs to educate as it is the retailer; most of a customer's purchasing decision hinges on the effectiveness and knowledge of the sales staff. So Davis should work on ways to provide training workshops to retail salespeople on the importance of width sizing. "Few of them are really trained."

Many of you thought just-in-time retailing was a smart way to go. That will help "take the stocking burden off the retailer." Keep the retailers happy, you said, "and they will sell for you." Some other alternatives mentioned to help retailers lower inventory on widths: create a catalog, have customers go factory-direct, provide drop-shipping to retailers. Many suggestions focused on advertising: "Put money into ads that promote brand awareness." It might be money well spent; some readers said they had never even heard of New Balance. Regardless, can New Balance hope to match Reebok and Nike in the advertising wars? If Davis decides to go for the youth market, he may need a big-name endorsement. "Unfortunately, kids are buying what their heroes wear, which has nothing to do with quality and everything to do with marketing." Others suggested Davis go in the opposite direction. "Find an average Joe to endorse the shoes: 'Our shoes come in different widths -- because our customers' feet do.' " A number of you expressed concern that Davis is expanding too much with so many new models. "Dress shoes didn't get you where you are." They urged him not to diversify too much. Some said to forget about Nike and Reebok. "Davis is too caught up in competing with the big guys." "New Balance has to focus on defending against players like ASICS and Saucony."

In general, do you think domestic manufacturing can be a competitive advantage?

Yes 83% No 17%

Many respondents saw merit in the "Made in the USA" pitch, but others saw it as mere jingoism. Marketing pitch aside, most respondents felt that domestic manufacturing has definite advantages. The reason cited most was quality control. Domestic manufacturing "keeps the fit more consistent than if you make shoes in three or four different countries." Being close to the market "improves turnaround time and production time from conception to finished product." Such response-time benefits could mean a lot to retailers. But others felt that domestic manufacturing, while admirable, isn't competitive. "Will consumers live with higher prices to cover this? I doubt it." "Your biggest competitors are using foreign labor, and they use the savings to cut price and advertise." And all overseas production isn't necessarily substandard. Quality, some say, is not geography-specific. Perhaps the most practical approach mentioned was for Davis to be flexible and to manufacture anywhere in the world that makes sense, be it overseas or at home. n